Net stocks retreat

Amazon reports narrower-than-expected quarterly loss

By

BambiFrancisco

NEW YORK (CBS.MW) -- After trading in the black for much of the session, Net shares retreated for the third straight session on Tuesday as investors stayed cautious amid a week laden with earnings and economic reports.

The Goldman Sachs Internet Index fell 3.7 percent by the close. Merrill Lynch Internet Holdrs fell as well, after trading in the black early on. Merrill Lynch B2B Internet Holdrs, a basket of stocks representing companies whose products are developed and marketed to firms that conduct electronic commerce online, ended the session with a 2-percent loss.

Among the Net companies in the news: Amazon.com
AMZN, -0.05%
reported a first-quarter loss of 21 cents, narrower than the consensus estimate of negative 24 cents and better than the negative 22 cents Amazon guided analysts to expect when it warned on April 9. Quarterly revenue grew to $700 million, higher than the company's lowered estimate issued two weeks ago. Amazon also said it added 3 million new customers worldwide.

Shares of Amazon gave up 52 cents, or 3.2 percent, to $15.68 ahead of the company's first-quarter results after the close. It had traded at $16.80 earlier.

FreeMarkets
FMKT
lost 99 cents, or 10 percent, to $9.30 on the heels of its less than stellar quarterly result and management guidance to lower '01 revenue estimates by roughly 15 percent.

CommerceOne
CMRC
a so-called "B2B" company, traded as high as $10.85 before settling back, rising 44 cents to $9.20. The provider of software and services to run e-trading communities made a series of announcements, including new products jointly developed with Microsoft to be released in the second half of this year.

In broadband-related news, EarthLink
ELNK, -0.69%
one of the pioneers in providing consumers with Internet access, said its broadband business continued to fuel its growth. The company added more than 73,000 high-speed customers in the first quarter, bringing its total broadband user base to 288,000. EarthLink also announced a quarterly loss of 27 cents, narrower than the negative consensus estimate of 36 cents. Shares of EarthLink jumped 6 percent to $11.55.

Amazon's bulls vs. bears

In a warning issued April 9, Amazon guided analysts to expect a loss of 22 cents per share, narrower than the 35-cent loss posted in the same period last year. Quarterly revenue is estimated to grow to $695 million, up from $574 million in the year-ago period.

Amazon rose 46 cents in Monday trading, extending last week's 8 percent gain as some investors heeded the advice of bullish analysts, like Jeetil Patel at Deutsche Banc Alex. Brown, who upped his rating to a "buy" from an "outperform" on Monday, while forecasting a 25 percent return in shares with his $20 price target. Some would argue, however, that the target makes ambitious assumptions. For instance, Patel expects Amazon to strike another e-business services deal, similar to Amazon's ToysRus.com alliance. He also predicts that Amazon will generate $211 million in advertising commerce revenue, implying a market valuation for this business unit alone to be nearly $2 billion.

"At first glance, maybe it's not unfathomable to imagine the company could double this revenue year-over-year," observed hedge fund manager, Eric Von der Porten. "However, of the estimated $98 million of ACN/advertising revenue from last year, $79 million was in the form of stock from Ashford, Drugstore.com, Audible, etc. and that stock is now virtually worthless."

Essentially, Patel expects the segment to grow from a revenue contribution of "very roughly $20 million in '01. And he thinks this business is worth almost $2 billion," Von der Porten said incredulously. Patel, who stands by his analysis, pointed out that Amazon continues to have solid advertising partners, including Microsoft, Ofoto.com and Hewlett-Packard.

Von der Porten also takes issue with Patel's revenue estimates. "It appears that revenue-per-cumulative customer declined from nearly $29 in the March '00 quarter to $22 in March '01, suggesting the company continues to suffer attrition," he said. "I'll be interested to see the number of new customers. And the fact that the company didn't include it in its pre-announcement suggests it may not be an impressive number for the quarter."

Running e-marketplaces

Shares of FreeMarkets fell back after the provider of Web-based software services that help companies to procure direct goods through auctions posted better-than-expected first-quarter earnings but missed quarterly revenue goals and lowered future sales estimates.

The company posted a loss of 24 cents per share, 2 cents narrower than expectations. Quarterly sales rose to $33 million, missing projections of $36 million by 8 percent.

FreeMarkets said revenue for 2001 is expected to come in at about $150 million, lower than previous revenue guidance. Merrill Lynch had previously pegged $176 million in revenue for this year. The company also sees a loss of 73 cents a share for 2001, in line with expectations. The company still expects to be cash-flow positive by the first quarter of '02.

CommerceOne received modest praise from the analyst community for its round of announcements including new products with Microsoft.

"While we view these announcements as positive, we believe overall supplier adoption among the SME (small- and medium-sized exchanges) will continue to remain slow due to lack of perceived benefit and an attachment to conventional processes," wrote Mark Verbeck, an analyst at Epoch Partners.

Remember when...

Remember TheGlobe.com
TGLO, +0.00%
the much ballyhooed dot-com that went public on Nov. 12, '98 and opened up 900 percent from its offering price of $9 or a split-adjusted IPO price of $4.50?

In a stark example of the dwindling group of pure-play dot-com pioneers, the operator of Internet games and community sites will now trade as a bulletin board stock because its shares were unable to trade at the Nasdaq's $1 minimum bid requirement. See full story.

Intraday Data provided by SIX Financial Information and subject to terms of use.
Historical and current end-of-day data provided by SIX Financial Information. Intraday data
delayed per exchange requirements. S&P/Dow Jones Indices (SM) from Dow Jones & Company, Inc.
All quotes are in local exchange time. Real time last sale data provided by NASDAQ. More
information on NASDAQ traded symbols and their current financial status. Intraday
data delayed 15 minutes for Nasdaq, and 20 minutes for other exchanges. S&P/Dow Jones Indices (SM)
from Dow Jones & Company, Inc. SEHK intraday data is provided by SIX Financial Information and is
at least 60-minutes delayed. All quotes are in local exchange time.